Our futures and those of many other life forms on our planet are not assured. Unsustainable growth, lifestyles and business activities are adversely affecting the environment and biodiversity, using up scarce natural capital and exacerbating global warming and climate change. Many communities, including major cities, may cease to remain viable long before these negative consequences peak. What steps should boards now take in relation to corporate social and environmental responsibilities and both corporate and collective responses?
An existential threat such as global warming could have multiple consequences for most businesses and societies. They include more extreme weather events such as fires and floods, the inundation of coastal areas and cities as sea levels rise, food security issues and mass migrations of people who are displaced and in search of more habitable places to live. Their combination could trigger inter-communal and inter-state conflicts, breakdowns of law and order, and the collapse of financial systems. What do boards need to discuss and/or review?
In many companies, people across multiple functions, business units and supply chain partners can have an impact upon corporate responses to existential challenges and activities and operations that relate to corporate social responsibility (CSR) and the environmental, social and governance (ESG) concerns of stakeholders. Whether or not there is a national requirement for a specific CSR committee, boards need to ensure alignment, coordination and consolidation and provide clear strategic direction and effective oversight.
Recognising Root Causes of Problems
A first move could be to recognise root causes and responsibilities. Individuals, organisations and communities, like many Governments that encourage and support economic growth, want the benefits of further development and materialism, but without their environmental impacts. We want to have our cake and eat it. The focus of many business leaders has been on increasing the size of the cake rather than the consequences of unsustainable economic growth. The undesirable impacts of human behaviours upon the environment and their social consequences have now reached potentially catastrophic levels.
There is an international scientific consensus that damaging activities and their consequences should now be addressed by collective action at corporate, national and global level. Transition and transformation journeys to more sustainable operations and lifestyles must be accelerated while they are still possible. Collectively, we must act before tipping points are reached, after which an existential challenge such as global warming becomes unstoppable. However, many stakeholders opt to ‘carry on’ or ‘catch up’ rather than ‘scale down’ or ‘phase out’. They want to make hay while a metaphorical sun shines. Rather than show restraint and ‘cut back’, they rebook their foreign holidays as soon as travel restrictions ease.
Others, and especially younger people, worry about their futures. Will they be forced to migrate in search of food or higher ground? Will they have to rummage through dumps and scavenge for rare earth minerals and the basic materials needed for their survival? How can directors help to prevent such scenarios? How should boards confront selfish and vested interests? What about the behaviours and lifestyles of directors themselves and those of the people with whom they work, learn and live? What about their families, communities and societies? Could we better engage, influence and support our peers and those to whom we report or feel accountable? How might we persuade and help them to change direction?
Agreeing Social Responsibilities
To whom are and should boards be responsible and for what? Many directors have devoted their lives to serving the articulated or observed requirements, ‘wants’ and preferences of current customers and other stakeholders, rather than questioning them. Membership of most human communities and societies, and those of many other species, appears linked to expectations of behaviour that other members consider acceptable and responsible. It comes with obligations and there may be costs for those who do not meet them. Over time, public and stakeholder expectations of corporate citizens and what they may accept or tolerate can change. In periods of challenge, crisis and stress, they should not be taken for granted.
As awareness grows of the negative consequences of business activities and contemporary lifestyles, boards should reassess stakeholder expectations of them and their responsibilities. The term corporate social responsibility and/or its acronym CSR has been used in relation to companies, but what does, could or should the term ‘social’ mean? Does it relate to a particular society or society in general? Does it embrace a local community or a wider society at national or international level, or refer to certain non-work gatherings or other activities?
Views may differ on what the term ‘social’ should cover. Some distinguish between social, economic, environmental, moral, ethical, legal and other forms of responsibility. ESG investors may separately apply environmental, social and governance considerations. Others take a more holistic view. They see these separate elements as inter-related and recognize that a wide range of corporate activities have impacts upon society, and are ‘social’ in the sense of having consequences and implications for society and members of society beyond those who have traditionally been considered stakeholders such as investors, customers or suppliers.
Moving from the Margins to the Mainstream
Past corporate CSR initiatives have sometimes been relatively isolated projects that have run alongside and apart from mainstream business units without distracting core capabilities. Just enough has been done to enable a brief contribution to an annual report and meet any imposed requirement or other external expectation. Companies have also been criticized and subjected to regulatory and legal measures designed to limit the undesirable consequences of their activities. They, business generally, markets and capitalism have had their detractors.
In relation to global warming and climate change, Governments being pressed to do more are increasingly dependent upon the corporate sector for delivering national net zero and UN Sustainable Development Goal (SDG) objectives. Most of the required capabilities, know-how, technology and tools, and the capacity to innovate that is needed to achieve them, are in the hands of commercial companies. Should Governments and regulators switch their focus from limiting or preventing negative externalities to encouraging and incentivizing positive ones and the delivery of SDGs and ambitious net zero targets? Should board perspectives extend beyond hitherto narrow and short-term corporate interests to embrace the longer-term sustainability needs of wider communities, people internationally and global eco-systems?
Existential challenges are pressing and severe. Do more corporate capabilities now need to be devoted to addressing them, adaptation and mitigation measures and supporting transition to more sustainable and resilient operations, infrastructures, lifestyles and communities? As aspirations, priorities and requirements change, social, economic and technological innovation will be required and transitions and transformations will need to be funded. What market and pricing mechanisms are likely to be required to ensure the diversity of responses needed to satisfy differing requirements and provide bespoke solutions? What more should boards do to appeal to concerned stakeholders? Might a more responsible approach and more sustainably produced offerings attract customers and enable a price premium to be charged?
Embracing the Distinction between Strategic Direction and Operational Management
Company directors have distinct duties and responsibilities. They should think about the future and continuing corporate relevance, acceptability and success. If concerned, they may need help and support if their aspirations for sustainability are to become shared achievements. Directors should be aware of the consequences of corporate activities and alert to any developments in the business environment that might affect them, and sensitive to changing stakeholder views and priorities, either responding or being proactive as required.
In some cases, corporate responsibility and ESG motivations may be largely externally driven. They might reflect legal and regulatory requirements, pressures from stakeholders and wider public aspirations, expectations and requirements. Other directors are also inwardly driven. Rather than just react, they want to be more responsible and to actively address challenges such as climate change. They strive for corporate activities to be more sustainable and to have beneficial as opposed to harmful impacts. Experienced directors recognise that grasping nettles, acting responsibly and ‘doing the right thing’ can often be tougher and more costly than looking the other way and carrying on as before.
Engagement with stakeholders, and the increased attention being devoted to ESG concerns, is resulting in growing recognition of the reputational, financial and relationship benefits of responsible leadership. Managerial responsibilities often relate to particular activities, projects, functions or business units. In comparison, the responsibilities of directors are wider. They extend to the whole of a company and its networks of relationships. The need for greater environmental and social responsibility and more responsible governance is clear. Increasingly, issues facing boards, from corporate purpose, objectives and priorities to corporate activities and their impacts, have to be viewed through a ‘responsibility’ lens.
Confronting Contextual Challenges
More boards are deciding that the strategic direction they provide, and the corporate policies they establish or approve, should cover a widening circle of arenas previously considered as ‘external’, such as the environment. Many directors find it more difficult to just focus on ‘business’ matters and avoid ‘political’ issues. Investors with ESG priorities and stakeholders in general increasingly seem concerned with broader economic, social and environmental aspects of corporate activities. How should boards show they ‘get it’ and respond?
Many Indian boards face particular challenges. Should companies operating internationally establish corporate foreign policies as well as those relating to net zero and UN SDGs? Global warming with its climate change consequences and the Russian invasion of Ukraine with its risk of escalation are pressing existential issues. In relation to global warming, past emissions of greenhouse gasses are history. The triggering of tipping points depends upon what we do now and future emissions. Other countries aim to achieve ‘net zero’ by 2050 and in some cases before. India plans to be a net emitter of greenhouse gasses for long after. Given the catastrophic impacts of uncontrollable temperature rises and risk of related losses and damages claims, should Indian corporate net zero targets be more ambitious?
The premeditated and illegal invasion of Ukraine in violation of the UN charter has caused many countries around the world to impose sanctions upon the Russian Federation. The UN Secretary-General has said that “Ukraine needs and deserves our full commitment and full support”. Whether because of corporate values, ethical principles or the reputational damage that might arise in many markets from not backing or applying sanctions, should more Indian boards follow the example of companies like Tata Steel and Infosys and stop working in Russia and/or withdraw from the country? How might Ukraine’s recovery be supported?
Grasping Opportunities that Accompany Challenges
Ends sought and the means used to attain them should both be responsible. Boards should ensure that corporate purpose, mission, vision, values, goals and objectives, and strategies, policies and behaviours to achieve them are aligned and consistent. They should check that activities and operations in pursuit of worthy and desirable objectives do not have harmful consequences and result in negative externalities. Ambitious environmental and social goals and objectives may engage and motivate, but how might they be affordable and feasible?
While monitoring, assessing and reporting on what they collectively set out to do, directors should also be alert, open and receptive to possibilities. Are they exploring and pursuing new opportunities, and changing direction in response to stakeholder concerns? Is board ambition aligned with corporate and collective capability? Do boards seek missing capabilities needed to implement their strategic priorities or seize opportunities from existing business partners or other likeminded and complementary collaborators as and when required?
Tackling existential challenges and seizing related opportunities can requires collective effort. Collaboration may be needed to achieve the scale of response required. What a company does in cooperation with other parties may have far more impact than operating alone or with a core supply chain. Effective boards recognise the potential for corporate and stakeholder engagement and alignment around shared interests. They understand both the inter-connectedness of different existential challenges and the opportunities they create.
Collaboration and Collective Action
Contributing to collective activities to confront shared challenges and seize related opportunities could be a corporate purpose. Coalitions or consortia of organisations may need to be brought together to address common requirements, such as those for climate change adaptation and more resilient infrastructures. Greater awareness of stakeholder and partner aspirations and priorities might allow conversations to be switched from price to value creation, co-creation possibilities and win-win outcomes.
While striving to accommodate the requirements of others, a board must not lose sight of its own aims and priorities. It should articulate its views on what it would like to achieve. Ensuring that the purposes, aims and strategies of collaborating parties are aligned and consistent can help to ensure that collective endeavour is built upon firm foundations. How might such alignment and consistency be best achieved? Who might form the most appropriate corporate team to negotiate and manage collaborative arrangements?
A board’s approach to CSR and ESG should also extend to activities within corporate supply and value chains. This may be where most negative externalities might arise and they may not be visible. Parts of a business, particular collaborations and certain ventures, and/or major projects, might need to be governed and/or managed differently on account of the nature of their activities, the timescales required and other parties involved. How might governance arrangements better recognise and accommodate such diversity?
Being More Open and Transparent
Corporate accounting and reporting policies and practices can be very revealing of the extent to which a board is aware, responsible and transparent. Those of many companies seem designed to conceal the full extent of negative externalities. What arrangements should be put in place to increase board and executive awareness of them and improve their assessment? How might efforts underway to consolidate a plethora of different standards be supported? Should the Stakeholder Capitalism Metrics of the World Economic Forum be adopted?
Activities that damage ecosystems, reduce bio-diversity, deplete scarce natural capital and contribute to global warming are sometimes ignored, accepted, hidden or tolerated. They may also be assessed, viewed, described and reported as ‘profitable’. Directors who approve the resulting accounts and do not challenge such practices and related investment proposals are morally responsible. At some point might they also become legally liable for consequential harm to the environment and current and future generations? How justifiable are current corporate policies and priorities? Are compliance and legal risks being addressed?
Rather than hope that an annual report or other corporate communications may be read by relevant parties, should a board encourage proactive approaches to those who might support or assist the implementation of a company’s ESG or responsible business strategy? Instead of concealing past excesses, irresponsible activities, and mistakes, directors could encourage executives, and customers whose demands contributed to them, to move on and learn from them. What more should be done to understand the drivers and root causes of operations found to be harmful and proposals that appear irresponsible so that they can be addressed?
Recognising CSR and ESG as an Opportunity
CSR, ESG and responsible business conduct is more than scaling back damaging activities, ending unsustainable operations and dealing with negative consequences. It also involves positive and collective initiatives to create, enable and support operations and lifestyles that are desirable as well as sustainable. It is about opportunity and responsible innovation, enterprise and capitalism. It is about creating new options and choices for stakeholders to live and operate more sustainably and in harmony with the natural world as advocated by Indian ancient wisdom. It could involve initiatives that appeal to concerned and talented people.
CSR and ESG can attract, engage and motivate, but their achievement often requires commitment, courage and persistence. Significant and sometimes radical, changes of aspirations and priorities may be required. How should boards increase awareness and understanding of our shared challenges, the unprecedented opportunities they create and what now needs to be done? Directors should act as a corporate conscience and as catalysts of collective endeavours to create more responsible, inclusive, sustainable and aligned corporate and community futures and lifestyles. How might the focus of a board and executive team be switched from activities to the outcomes that concerned stakeholders increasingly seek?
As a starting point, should directors encourage exploration of why offerings are purchased and consumed? Maybe the feelings and fulfilment that customers hope manufactured offerings might stimulate could be more reliably delivered by less environmentally damaging, resource intensive and costly alternatives and more exercise, social activity and contact with nature. Should businesses actively enable them to do things differently and make more responsible choices? Will the most advanced societies be those that help their people to adopt simpler, healthier, less stressful and wasteful, and more rewarding and sustainable lifestyles?
Acting While There is Still Time
Our collective futures and those of many other forms of life on our planet remain in the balance. Shared existential challenges such as global warming have created a rare opportunity to reconcile hitherto contending interests and unify around the common goal of survival. A global pandemic and widespread experience of extreme weather events have created shared experiences. Sadly, when greater unity might have been in reach the Russian invasion of Ukraine has exacerbated existing fault lines and opened up new ones, at a time when we need collaboration and collective action to deal with other pressing existential threats.
The skies are darkening with more than extreme weather events. Growing, liberal versus illiberal, democratic versus authoritarian, free versus controlled media, inter-community, and other divides could be exacerbated by mass displacements caused by climate change. Directors attend the Institute of Directors’ International Conferences on Corporate Social Responsibility because they care. They think about consequences. They favour responsible conduct and seek more sustainable outcomes. While they are still in the game there is hope.
Responsible strategies for creating sustainable corporate and community futures and their concerted and collective implementation are urgently required. Directors should exercise independent judgement when formulating and implementing them. While many Governments are preoccupied with narrowly defined and short-term national interests, and in the case of many democracies avoiding or postponing difficult choices, responsible boards could make the difference between catastrophe and survival. They have a purpose, a cause, relative freedom to act and an unprecedented opportunity. Will they and we step up and ‘go for it’?